ISG Provider Lens™ Finance & Accounting (F&A) Digital Outsourcing Services - U.K. 2020 - Consulting Services
Finance and accounting outsourcing (FAO) services make up a mature market that has evolved over the years. Traditionally known for its offshoring of non-critical business functions, today the market landscape has changed dramatically with the widening of the enterprise expectations.
Once an FTE-driven market, the landscape of FAO has seen a dramatic shift with the advent of technology. Automation, in particular, has become essential and robotic process automation (RPA) is now integral to all finance functions, and the number of use cases is growing.
Multiple factors are influencing these changes ― including technology, increased enduser expectations, the changing role of the chief financial officer, front- and back-office integration to customer experience and enterprise dependency on experts to transform finance functions.
One of the critical factors influencing this changing landscape is the changing nature of enterprise and provider relationships that have matured over the years, from sourcing partnerships to strategic partnerships. As service providers invest in building capabilities to serve clients end to end, enterprise clients are increasingly becoming comfortable and confident with outsourcing high-end finance functions. Increasingly, the changing role of the CFO in organizations is also driving these changes, particularly in digital native companies that are born in cloud are quick to embrace this transformation. These cloud-born companies lean on providers to manage end to end functions and look for more strategic relationships.
U.K. market overview
Although it is slightly conservative, the U.K. is one of the leading outsourcers of finance and accounting (F&A) services. As the F&A industry matures, the U.K. is seeing a shift in enterprise buying patterns. Traditionally, the U.K. has been a slow mover in embracing any transformation; however, the buying pattern is slowly evolving as an increasing number of enterprises are showing an inclination to fast track their transformation journey.
Brexit uncertainty continues to loom over the industry and impacts large deals; many enterprises are delaying big deals due to uncertainty portended by Brexit. However, outsourcing has not seen a major impact. With Brexit and potential immigration issues, the U.K. is also seeing skill shortage owing to the reliance on skills from outside. In addition, the U.K. is one of the countries severely impacted by COVID-19, which has affected the economic conditions and predicts sluggish growth in 2020. All these factors could potentially lead to U.K. enterprises relying on services partners for their skills and leveraging offshoring to get tasks done.
The introduction of the EU’s General Data Protection Regulation (GDPR) led to conversation around localization, nearshore and minimization of offshoring. However, with all service providers taking measures to ensure security and privacy of data such as implementation of a data protection officer, training, organizing and classifying data and implementing data management best practices have minimized the effect on offshoring. With multiple changes, and most importantly the changing nature of businesses, service providers are expanding their nearshore capabilities. Players such as Accenture, Genpact, TCS, IBM and Infosys and aggressively expanding nearshore capabilities in Poland, Romania and other East European countries to provide services to their clients.
ISG observes the following FAO trends that are shaping the industry globally
Outsourcing of complex finance functions sees growth: Conventional outsourcing typically sees more of order to cash (O2C) or procure to pay (P2P) relationships, and only about half of record to report (R2R) functions are outsourced. As service providers continue to exhibit and build on F&A capabilities, they have confidently secured the trust of their clients who are now outsourcing complex finance functions that were traditionally not outsourced. From bookkeeping needs to budgeting, forecasting, cash flow modeling, decision support, management reporting, tax and compliance support, audit support etc., enterprises are increasingly turning toward their sourcing partners for help with these activities and to enable CFOs with better insights.
To enable these services for their clients, service providers are investing in reskilling their employees to handle complex queries, and, in some cases, partnering with firms like the Big 4 to deliver services or investing in skilled resources.
Consulting services take center stage as enterprises are increasingly embracing transformation: As the complexity of engagement is increasing with evolving changes and technological needs, expectations from service providers are also changing. Moving away from lift-and-shift models to complex functions and technology roadmaps, enterprises are keen to transform finance functions and are ready to embrace technology along the way to make their processes more efficient. They are under immense pressure to transform their finance functions, but are grappling with challenges trying to address questions on where to begin the journey. During such situations, enterprises lean on a service provider’s expertise and capabilities to develop and design this transformation roadmap. As a result, the supply side of the industry is making huge investments in growing its consulting practice, either organically or inorganically. Design thinking, partnerships, transformation frameworks and investment in reskilling are the various investments that service providers are focusing on.
One of the critical investments that most service providers are turning to is research and development. Establishing a framework based on enterprise client needs, building a best practices framework based on use cases and staying abreast of market and industry trends are becoming more pertinent for establishing successful consulting services.
Verticalization becomes pivotal: As the nature of engagements are changing from transactional to holistic, vertical knowledge will play a crucial role in helping clients achieve the benefits of outsourcing. A deeper understanding of vertical-specific nuances of F&A is important for service providers to demonstrate that knowledge and skillset; claims management in insurance, revenue assurance in telecom, fuel accounting in energy, billing management in airline are industry specific finance functions that will require experienced and skilled resources to manage them. In addition to knowledge and industry best practices that service providers can demonstrate, their expertise and experience would also come a long way in developing industry-specific, bolt-on solutions, especially for the digital native companies that are ready to plug and play right at the outset.
Automation deployments are at their peak: The back-office functions, in particular, witnessed the possibility of scaling RPA significantly. F&A processes and the industry is ripe for large number of bot deployments. According to ISG Research, 83 percent of enterprises with mature automation practices lead the way with RPA deployments in the F&A space. These enterprises have adopted RPA at scale and have automated two or more functions. At the same time, organizations that are beginning to explore opportunities are slowly catching up in terms of RPA deployment as they recognize accuracy and higher efficiencies are highly critical. With automation, these can be achieved at a higher level.
As the industry sees more of these use cases and enterprise expectations increase around automation, service providers are making significant investments to grow their capabilities. Either through home-grown solutions or expansive partnerships, these service providers continue to invest in RPA. With proven results, many mid-size service providers are building and bringing extensive automation capabilities, and are moving ahead aggressively with the promise of outcome-based pricing.
Adoption of artificial intelligence (AI)/machine learning (ML) is gaining traction: AI/ML implementations are on the rise and nearly 95 percent of enterprises are either experimenting with or have deployed ML for F&A processes. With the increase in adoption of image processing, natural language processing (NLP) and robo advisors on the front end, a large portion of finance processes such as accounts payables have become touchless processes requiring minimal human interaction. Also, AI/ML is being highly leveraged across billing and collections, e-mail classification, fraud detection, invoice processing of unstructured data and industry-specific processes such as insurance claims processing.
Organizational change management continue to play an important role: As more enterprises are keen to embrace technology, together with the rapid adoption of automation, organizational change management will play a critical role in helping employees adapt to technological changes. Helping employees reskill or upskill will be crucial so that resources can be moved to adjacent or higher up roles to handle complex processes. Service providers such as Infosys and TCS have developed elaborate learning platforms and are extending it to enterprise clients to help them with reskilling their employees. Infosys’ Wingspan and TCS’ iON offer elaborate content online, helping employees to learn newer technologies and provide so-called learning on the go.
Analytics takes centerstage in FAO: With the changing role of CFOs, from bookkeepers to strategists, analytics acts as a critical enabler, empowering CFOs to take data-driven decisions in real time. Real time view of finance organization will drive data-driven decisions quickly and effectively, thus helping them to be more proactive than reactive. For example, collections is one of the primary areas of focus for most organizations. Having visibility into cash flow is an extremely valuable measure for a CFO. With the emergence of technology, rapid AI adoption and mature processes, gleaning insights from data, identifying the pain points or nailing down the next action item is not far-fetched. Analytics spans across the F&A value chain, and in a sourcing engagement analytics is the biggest value add to enterprise clients.
As the nature of client engagements turn from transactional to strategic, service providers are expected to deliver valuable insights for enterprises. Mature engagements are not limited to process execution and timely reports, but go beyond reporting to where a provider is also responsible for providing insights along with actionable recommendations to help drive business outcomes.
COVID-19 – An unprecedented situation
COVID-19 has had severe ramifications on several industries. ISG observes and suggests that both enterprises and service providers must take the following into consideration:
- Managing work-from-home: As the COVID-19 situation became critical, most countries went on complete lockdown. When offshore countries like India were affected, most resources that worked from office premises were required to move to home offices to maintain business continuity regardless of what service contracts stated. While it was a challenge in most instances, many service providers were also proactive in engaging with enterprise clients to figure out the situation. For the clients, identifying business critical processes and engaging with service provider to define business continuity plans for these processes became imperative. Considering the uncertainty of the situation, managing this on an ongoing basis is the need of the hour.
- Paying utmost attention to security: Most business process outsourcing service providers have large office infrastructure and stringent security measures. However, with the work-from-home situation, security is critical, with high chances of data compromise. Working collaboratively and proactively with sourcing partners to ensure that the right security measures are put in place and data is securely managed is critical.
- Revisiting the business continuity plan (BCP): BCP clauses are a part of every engagement, but the question is, “Could they have been drafted in anticipation of a pandemic like COVID-19?” The answer to that is big “no.” Therefore, revisiting a BCP plan with provider partners to ensure a smooth functioning of business processes is a critical step that organizations must work toward.
- Digital transformation is likely to become the top priority: Reliance on technology during such unprecedented times has dramatically increased. With increased work from home, the adoption of cloud solutions and workplace tools has increased to enable remote access for employees. Automation of processes can be a boon in such situations, allowing most processes to be handled anywhere, anytime, without human intervention. In an instance where the movement of workers from office to home could have slowed down processes, automation can be leveraged to complete tasks on time more effectively and efficiently, thus, enabling employees to handle complex queries. On the customer service front, conversational AI adoption could potentially increase the successful management of large volumes of queries. This AI-based tool could give human-like experience and manage queries. Thus, accelerating the automation journey is a point of consideration for enterprises.
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